Housing prices up, but gains are slowing

With their latest annual gain of 8.1%, real estate prices — as measured by the 20-City S&P/Case-Shiller Home Price Index — continued to rise, but the pace of the increase is slowing. The last three sets of numbers reported (for April, May, and June sales) show gains of 10.8%, 9.3%, and now 8.1%, respectively.

While that data series does make it easy to forecast how the July numbers will probably come in — anyone want to go out on a limb and guess an annual gain of 7%? — it also leads observers to wonder when this latest run of gains, which started back in 2012, will peter out. While every single city tracked registered price gains, ranging from 0.8% year-over-year for Cleveland to 15.2% year-over-year for Las Vegas, the Index is currently still 17% off its Summer 2006 peak.

So is the real estate recovery party headed towards an end? Probably not soon. David Blitzer, Chairman of the committee that puts out the Index, noted in a press release today that “Other housing indicators — starts, existing home sales and builders’ sentiment — are positive. Taken together, these point to a more normal housing sector.”

The National Association of Realtors, which collects a separate set of countrywide statistics, noted in its release of July data that this is the “29th consecutive month of year-over-year price gains,” and also cited another factor in the housing recovery in its latest release — rising inventory. As Time.com has previously reported, inventory shortages have been an ongoing problem in many markets. In July, however, there were 2.37 million homes available for sale, according to NAR, up from 2.30 million in June. The volume of home sales is rising too, jumping 2.4% from June to a seasonally adjusted annual rate of 5.15 million, but the additional inventory means that that there is still supply for buyers to choose from. Looked at from the perspective of “how long would it take to sell out current inventory?” there is a 5.5-month supply of homes at the current sales pace, which tips the market slightly in favor of sellers but is close to the 6-month supply of homes that is considered to signal a balanced market.

Meanwhile co-ops and condos, which are not included in the Case-Shiller figures, were reported by the NAR to be selling at an annual rate of 600,000 units per year. The median existing condo price was $215,000 in July, up 3.3 percent from a year ago. That price number will probably continue to inch up as superluxury sales in large cities cross the ticker tape. In New York, for example, the New York Times reports that a 63rd floor apartment at One57, a slender tower with helicopter views of Central Park, sold earlier this month for $32.57 million, which is over $10 million per bedroom for the three-bedroom residence. But hey, at least it’s got four-and-a-half marble baths — two in the master suite alone. Presumably that’s what passes for balance in the luxury market.

However, the influence of extremely speculative markets (think: Miami and Vegas) is moderating, causing the national numbers to begin coming in at a slower pace.

For the year, this meant that the 20-City S&P/Case-Shiller Home Price Index, which had clocked a yearly gain of 10.8% in April, slowed to high single digits, posting a yearly gain of 9.3% for the twelve months ending in May.

On a monthly basis, prices were up 0.1% for the index. For the year, every one of the twenty cities showed price increases.

However, gains for the cities at the top of the market slowed, which may presage softer numbers for the index as a whole in the coming months. Call it “hot hot” instead of “hot hot hot.” Las Vegas, which last month showed a yearly gain of 18.8%, decelerated to a yearly gain of 16.9%; Miami slid from 14.7% to 13.2%, and Phoenix slowed from a yearly rate of 9.8% to 8.2%.

The cities with the slightest gains were Cleveland (up 1.2% month-to-month, and 2.4% annually); Charlotte (up 1.4% month-to-month, and 4.7% annually), and New York (up 1.0% from April, and 4.8% annually).

One strong driver behind the market has been historically low interest rates. The rate for thirty-year “jumbo” loans — those with a loan balance of greater than $417,000 — fell this week to 4.21 percent, according to a weekly survey by the Mortgage Bankers Association. The MBA noted in a release that this was “the lowest level since May 2013.”

So continued low rates are supporting high prices. But what about the Federal Reserve? Wasn’t the Fed, which had been following a program of supporting low interest rates by buying debt, supposed to be slowly removing that support by buying less debt? Last year, when then-Fed Chairman Ben Bernanke had announced that the Fed would wean off its latest round of bond purchasing, that so-called “Taper Talk” sent rates jumping.

Yet they’re low again because the economy made one strong realization: that “tapering” can be neutral. Yes, the Fed is buying less debt in an absolute sense — it’s buying a lower dollar volume worth of bonds. But the Federal government is also issuing less debt, since tax revenues are up. So indeed there’s less buying — but there’s less to buy. “It’s not really tightening if the proportion is the same,” noted Doug Duncan, senior vice president and chief economist of the mortgage giant Fannie Mae, in a chat with Time last month.

Going forward, there’s a possibility that rates do spike as the taper ends completely, which is planned for later this year. However, if the history of the past couple of years is any guide, that impact will show in a slowing volume of home sales. Prices, though, seem on track to keep rising — albeit at a slowing pace. Maybe by the end of the year, we’ll be down to just one “hot.”

Housing Prices Are Rising Like Crazy Across the Country

First the forest: The S&P/Case-Shiller Home Price Index, with data just released for April, continues to climb at a double-digit rate. Prices for the index, which aggregates 20 metro areas around the country, rose 10.8% year-over-year. That’s a slight slowdown from last month’s 11.5% year-over-year increase, but it’s still quite a strong showing. On a monthly basis, prices rose 0.2% on a seasonally adjusted basis. Keep in mind that it’s important to tweak this data for seasonality, since home sales typically peak in the spring and summer. The quality of those sales seems to be improving too—a recent report from the National Association of Realtors noted that foreclosures and short sales accounted for 11 percent of all home sales in May, compared with 18 percent of all home sales for the same month a year ago.

Now the trees: It’s possible to think of the housing market as three separate layers of activity: highly speculative cities, cities that were never really prey to the housing bubble in the first place, and cities in-between, that have seen a boom and bust, but at a relatively moderate pace. The highly speculative cities (think Las Vegas, Phoenix, Miami) continue to show blazing recovery, though at a more moderate pace than formerly. David M. Blitzer, the chairman of the committee that issues the Case-Shiller Indexes, stated in a release that “last year some Sunbelt cities were seeing year-over-year numbers close to 30%.” Arguably, the current data is still quite good—year-over-year, Vegas is up 18.8%, Miami up 14.7%, and Phoenix up 9.8%.

In another tier, a city that never really seemed to have had its bubble burst in the first place, Dallas, set a new housing price record as prices climbed 9.3% year-over-year. To quote Trey Garrison of Housing Wire, “as locales go, it doesn’t get better than Dallas.” Homes there are also selling quickly, Garrison noted, as the average number of days on market dropped 12% from the prior year to a current 54 days (yes, less than two months) on market. Similarly, Denver home prices, up 8.9% year-over-year, hit an all-time high. Metrolist, the company that runs the Multiple Listing Service in the Denver area, reported earlier this month that days on market had dropped to 29, from 44 a year ago.

But it’s the performance of the in-between cities that seems most interesting this month. Boston showed an increase in the pace of its rising prices, from 8.3% year-over-year to 9.0%. Atlanta, Chicago, and Seattle all clocked monthly gains of at least 2.0% (2.0%, 2.0%, and 2.3% respectively) with strong yearly numbers as well (13.7%, 10.7%, and 11.2%, respectively).

Given the way the three tiers of the index are performing, it looks like the next few Case-Shiller data points (May and summer) may come in looking worse at first glance, as activity in the most speculative markets cools off. But an examination of those in-between cities — I’m hesitant to call them middle tier — shows that the housing recovery is broad-based, and it seems that it will continue to be for some time.

This month’s S&P/Case-Shiller Home Price Index was up 0.9% month-over-month (comparing data for March, just released today, to February). That’s a good data point, but Case-Shiller — an index of housing prices in 20 metropolitan areas around the country — is notoriously tough to read from any one data point.

The algorithm that generates the data is proprietary, and the index seems to be more volatile than many other measures of housing prices, particularly in terms of reporting higher highs and lower lows. The government number, for instance, the Federal Housing Finance Agency House Price Index, shows price up 6.6% in the first quarter of 2014 from a year ago; Case-Shiller’s analogous number is up 10.3%.

The extreme sensitivity is great for journalists, because the Case-Shiller index is always “crashing” or “plummeting” or “leaping” or “surging.” It’s much tougher for consumers, who are generally trying to get an idea of what’s happening to the prices of the asset class into which they’ve sunk much, if not all, of their hard-earned money.

In an attempt to read those tea leaves last month, and separate the caffeinated from the decaf, I had written that Chicago might well be a bellwether for how real estate was behaving “throughout the nation.” From the current Case-Shiller data, we learn that it’s both leaping and surging, up 0.7% in March over the previous month, and up 11.5% year-over-year. To put that in perspective, Chicago Real Estate Daily notes that the jump is “the biggest increase in 25 years.”

To be fair, Chicago (like many cities in the U.S.) is in a very low-inventory situation, so prices are being pushed upwards by eager shoppers fighting over the last properties on the shelves. For an even better read on that market, we’ll need to see if these high prices induce sellers to list their homes, and watch the subsequent behavior of prices.

But for now, all looks sunny, with each and every one of the twenty cities in Case-Shiller reporting higher prices than a year ago. The leaders were out West, with Las Vegas up 21.2% over a year ago, San Francisco up 20.9%, and San Diego up 18.9%. The smallest gains were registered by New York (up 6.6% year-over-year), Charlotte (up 4.9%), and Cleveland (up 3.9%). Month-over-month, only New York declined, down 0.3% from February to March. Anyone watching the reports of record Manhattan condo prices might question why New York dropped at all, and why the annual gain isn’t in the double-digits — but the answer is that apartment sales aren’t included in Case-Shiller calculations.

Taking a glance at the finer-grained FHFA numbers, 71 of the 100 metro areas tracked showed price appreciation from the last quarter of 2013, even after seasonal adjustments. FHFA noted in a release that the index has increase for “23 of the last 24 months.” Seems like the bulls are running.

The 20-city composite, an index of major metropolitan areas from Atlanta to Washington, D.C., rose 12.9% year-over-year for the month ending in February. That healthy double-digit gain would cause optimism anywhere but in the world of housing prices, where it reflects a deceleration from the 13.2% increase clocked for January.

What’s more, the slowdown is expected to continue for the next few months. The question the data poses is whether this easing of speed is worrisome or not.

David M. Blizter, the chairman of the committee that releases the indices, sounded downbeat in a release, noting that “the annual rates have cooled the most we’ve seen in some time.” Blitzer cited weakness in housing starts and the fact that housing prices have not made it back to 2005 levels as two indicators of the lukewarm temperature of the market.

As someone who was wearing snow boots only a month ago, I’d say that there’s a factor being overlooked — the Winter That Would Not Quit. Housing data will probably continue to look weak (or weaker, since a 12.9% jump is nothing to sneeze at) for the next couple of months as it reflects a market where consumers had to trudge through muck to make their home purchases.

The delayed spring in much of the country could explain the softness in housing starts too, so — in an attempt to take some of the drama out of the data — let’s take a look at three other factors:

Mortgage rates. Despite the threat of Fed tapering, rates have been fairly consistent for a few months at around 4.5%. While there’s no discount for consumers taking smaller mortgages to buy starter homes, last week’s rates of 4.49% for small loans and 4.41% for jumbo loans aren’t likely to scare any consumers away. (Though an increase in the upfront payments, known as points, to get those loans bears watching. Points paid for a jumbo went up from .18 to .34 according to the Mortgage Bankers Association, which surveys rates nationally).

Weakness from peak. Taken in aggregate, housing prices have been around 20% below their highs of Spring/Summer 2006. (“Spring/Summer” is used because some localities peaked at different times than others). However, as TIME’s Rana Foroohar has noted, there’s a difference between top markets and the rest of the country, with higher priced-markets performing better. Still, every single city in the Case-Shiller 20 showed a year-over-year increase in prices, ranging from Cleveland (up 3.0%) to Phoenix (up 12.5%) and Seattle’s (12.8%) to highest-flyer Las Vegas (up 23.1%).

Dearth of inventory. This may be the real X factor behind how the 2014 turns out. Monday’s release from the National Association of Realtors noted that the Pending Home Sales Index, an indicator based on contract signings, rose 3.4% from February to March, but noted “ongoing inventory shortages in much of the U.S.” A lack of homes can lead to the existing homes being fought over — and their prices bid up — by potential buyers, but it isn’t a component of a broad-based real estate recovery.

The most interesting city to watch may be one in middle America. Chicago, up 10.8% year over year, was down 0.9% from January to February, according to Case-Shiller, but it looks like the city’s March numbers, as reported by local realtors, are up. The Illinois Association of Realtors noted that the median price for homes (which includes both single-family houses and condos) in the city of Chicago was $237,000, versus $187,000 a year previous. Mary Ellen Podmolik, writing in the Chicago Tribune, notes “buyers are vexed by a shortage of inventory that means there is little time to sleep on the decision to make an offer on sought-after properties.” Keep your eye on Chicago for the next few months, and see if more inventory — and more sales — are generated, and how prices move. That may be a bellwether for real estate throughout the nation.

Housing Comes Roaring Back to Life

Still down month-to-month though

Stating that “expectations and recent data point to continued home price gains for 2014,” David M. Blitzer, the chair of the committee that oversees the S&P/Case-Shiller Housing Price Index, released data that showed a 13.2% increase in prices for the 12 months ended January 2014. That’s a strong performance, especially when compared to the housing market’s plunge from its highs of Spring/Summer 2006. The market in general is only 20% off its peak of eight years ago, and — as noted in the release — Dallas and Denver are within 1% of their all-time highs.

However, month-to-month, the index dropped 0.1%, its third consecutive monthly decline. That’s a drop that I’d attribute to winter weather, as the housing market traditionally suffers when cold temperatures come. Certainly cities in the Sunshine State continued to perform, with Miami showing a monthly gain of 0.7% on a not-seasonally adjusted basis (even better, 1.2% when seasonally adjusted), and Tampa rising at 0.4% and 1.0%, respectively.

In fact, given how much snow got dumped on the U.S. in the past few months, it’s easy to predict that the next few monthly releases will show slight drops. Given the index’s two-month lag, it may be June before a month-to-month jump is announced.

That said, on a seasonally adjusted basis, the index is up 0.8% from December to January, and every one, yes, every one of the twenty metro areas covered showed a seasonally adjusted monthly jump. Those ranged from incremental (up 0.2% in Boston; up 0.4% in Atlanta, Charlotte, Chicago, Detroit, Los Angeles and Phoenix) to fairly hot (Washington, D.C., is up 1.3% and 9.2% year-over-year, while San Francisco is up 1.7% for the month and a sizzling 23.1% year-over-year).

Looking at ground-level data from another index released by Black Knight Financial Services, a mortgage data analytics company based in Jacksonville, Fla., shows strength in Texas (with Austin home prices just o.1% off peak, and Dallas, Houston, and San Antonio just 0.3% off their peaks) and recovery scattered throughout many mid-sized cities (Columbus, OH, prices are just 5.4% off their 2006 peaks, while Boston is down just 7.1%). If you’re a data geek, be aware that the index from Black Knight excludes some distressed sales that are included in Case-Shiller, so it’s generally going to look more moderate. In aggregate, the Black Knight index reads as flat month-to-month and up 8% year-over-year.

The X Factor, of course, is mortgage lending. The Federal Reserve under new chair Janet Yellen continues to taper its bond purchases, but her recent statement that the Fed would keep interest rates low for “a considerable period” has to be seen as a positive for real estate markets, since mortgage rates tend to follow Fed rates.

On that front, so far, so low: the most recent loan rates reported by the Mortgage Bankers Association, which tracks weekly mortgage applications and rates, were 4.5% for a standard 30-year-fixed loan, down .02 percentage points from the previous week, and 4.39% for a 30-year-fixed “jumbo” loan, also down 0.2 percentage points from the previous week.